The U.S. dollar remained under pressure on Tuesday as investors awaited a series of critical economic reports expected to influence the Federal Reserve’s interest rate outlook. Meanwhile, the Japanese yen held on to recent gains following Prime Minister Sanae Takaichi’s decisive election victory, keeping currency markets on edge.
Sterling was largely steady during early Asian trading after a volatile previous session, as markets weighed political uncertainty surrounding UK Prime Minister Keir Starmer alongside growing bets on further interest rate cuts. The British pound last traded at $1.3682, after climbing 0.6% on Monday.
The Japanese yen stood at 155.85 per dollar, maintaining overnight strength after gaining around 0.8%. Currency support was boosted by verbal warnings from Japanese authorities, which helped counter the initial weakness seen immediately after Takaichi’s win. Still, analysts note the yen remains down about 6% since she assumed leadership of the ruling Liberal Democratic Party in October.
Looking ahead, market strategists expect renewed pressure on the yen as attention shifts to Japan’s fiscal direction under the new administration. Carol Kong, a currency strategist at Commonwealth Bank of Australia, said expectations of looser fiscal policy could push dollar-yen higher again, with forecasts pointing toward 164 by year-end. Other analysts added that a more hawkish tone from the Bank of Japan may be needed to support a lasting yen recovery.
Elsewhere, the euro eased slightly to $1.19 after a sharp rise earlier in the week, while the dollar index hovered near a one-week low. Investors are now focused on upcoming U.S. employment and inflation data, delayed by the recent government shutdown, with markets still pricing in two Federal Reserve rate cuts this year—starting as early as June—amid uncertainty over the future direction of U.S. monetary policy.
source: cnbc